Red Meat Producers call for inclusion of other meat products on zero VAT list

The Red Meat Producers Organisation (RPO) has called for South Africa to also consider some meat products to be included in the zero VAT list alongside individually quick frozen (IQF) chicken portions to drive affordable food for consumers in South Africa.

This comes after the South African Poultry Association (SAPA) and the Democratic Alliance (DA) recently called for IQF chicken products be VAT zero-rated.

It also comes after President Cyril Ramaphosa, during his Opening of Parliament Address, announced a plan to change the range of food items exempt from VAT, saying it indicated multi-party support for an initiative that would help to lower food prices for low-income households.

This includes a comprehensive review of administered prices to identify areas where prices can be reduced.

RPO’s CEO, Dr Frikkie Maré, said last week that several factors should be considered when adding zero VAT to products.

“In South Africa, basic food products are rated at zero VAT. This is done to make basic foodstuffs more affordable for marginal and low-income consumers, and address hunger and malnutrition in the country. It is not only about providing enough food but also the correct type of food.

“Looking at the current list of food items that are zero VAT rated, it is clear that there are essential sources of the recommended food groups (protein, energy, fibre, etc.) on the list. However, this does not mean the current list is perfect, and ensures that hunger and malnutrition are addressed,” Maré said.

The comparison revealed that the shelf price of IQF chicken was the second lowest after beef liver, but when one took the amount of brine and bones in the product into account, it was the second most expensive product on the list after beef stew.

He said, “This comparison was only done on a few products, but what about products such as tripe, trotters, red offal (lungs, heart and kidneys), etc., which are affordable meat products?”

RPO believes a wide variety of meat products should be considered according to their price, nutritional information, and availability to ensure that the right products are included.

Another factor that should be accounted for when only IQF chicken was VAT zero rated was its impact on the chicken industry and the dynamics of the larger meat industry.

It said a market analysis that the Red Meat Research and Development SA commissioned on the possible consequences of zero VAT rating on four different meat scenarios - All meat, chicken only, beef only and red meat only - showed that a zero VAT rating on scenarios other than All meat could have significant distorting effects in the meat industry.

“For example, in the case of chicken only, incentivising demand through an exclusive zero rating of chicken might support consumers from a price perspective. However, the increased demand for lower-value chicken portions will likely be serviced by imports, which could do damages to the local poultry industry.”

RPO said another question regarding the poultry market was how beneficial the zero VAT rating would be for consumers in the long run. A price decrease would cause an associated increase in the quantity demanded in the short run.

“The demand curve of poultry should, however, shift over the longer term, as the prices of other meat products are now relatively higher compared to chicken which could, in turn, cause an increase in the cost of chicken again. The price should thus not remain at a level of 15% lower.”

Maré said the negative effects could also spill over to the broader meat industry.

The zero VAT rating of chicken should decrease the immediate price, increasing the demand for chicken and decreasing the demand; thus, the price of other meat products, since chicken would become relatively cheaper.

“For the past two years, the red meat industry has been struggling with very low producer price levels, and a decrease in demand and price will force many producers out of the market. To minimise the negative effects that the zero VAT rating of a single meat type might cause, we feel that different types should be included to keep the prices relatively closer.

The country should also consider the current ad valorem import tariff on poultry and red meat imports, the RPO said.

“If we start to argue that meat should be regarded as a basic food item, these products should be supplied as cheaply as possible to consumers. The question then is if we still need protection from cheap imports if we argue that meat is a basic food product that should be as cheap as possible.”

Maré said while the focus of expanding the zero VAT-rated list of basic foods should be to reduce hunger and malnutrition through increasing meat consumption, careful consideration should be given to what products should be included.

“The RPO would like to propose that a working group consisting of government representatives, nutritionists, economists, and agriculturalists review the costs and benefits of including different meat products on the basic foods list to be zero VAT-rated. This way, we can ensure that we maximise the benefits for consumers while minimising the potential risks and costs in the various sectors of the livestock and meat industry,” Maré said.

Professor Maxwell Mudhara, an agricultural economist based at the University of KwaZulu-Natal, said poultry meat and beef were consumed as protein sources.

“Nevertheless, proteins can also be obtained from non-meat products, i.e., plant based and fish. The current list of zero-rated foods includes eggs and pilchards, which are cheap protein sources. If the choice is between beef products and poultry, as in this case, then the recommendation would be to go with poultry.

“Beef has a shortcoming from a climate change perspective as cattle produce greenhouse gases that are climatically harmful. Secondly, beef has a potential of causing cholesterol, which can result in lifestyle diseases that are detrimental to people’s health,” Mudhara said.

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